20100917Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL

DATE: SEPTEMBER 9, 2010

SUBJECT: CASE NO. IPC-E-10-24 (Idaho Power)
FIRM ENERGY SALES AGREEMENT –
80 MW ROCKLAND WIND PROJECT LLC

On September 8, 2010, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting approval of a
25-year Firm Energy Sales Agreement (Agreement) between Idaho Power and Rockland Wind
Project LLC (Rockland) dated September 3, 2010.
AGREEMENT
Under the terms of the Agreement, Rockland will sell and Idaho Power will purchase
electric energy generated by the Rockland Wind Project (Facility) located near American Falls in
Power County, Idaho. The location of the Facility is more particularly described as Township 7
S, Range 31 E, Section 31; Township 8 S, Range 30 E, Sections 13, 24, 23-28, 33-36; Township
8 S, Range 31 E, Sections 6, 7, 16, 19, 30, 31 and Township 9 S, Range 30 E, Sections 1-5, 9-12,
Power County, Idaho. Agreement Appendix B-2. Rockland warrants that the Facility is a
qualifying facility (QF) under applicable provisions of the Public Utility Regulatory Policies Act
of 1978 (PURPA). Agreement ¶ 3.2.
The Rockland Wind Project will tentatively be comprised of 44 Vestas V100 turbines
for a total nameplate rating of 79.2 MW. Agreement Appendix B-1. The maximum capacity
amount is 80 MW. Appendix B-4. Because this amount exceeds 10 aMW, the Company ran its
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AURORA economic dispatch model consistent with the Commission requirements for projects
larger than 10 MW to establish a basis for the energy purchase price in the Agreement.
The Agreement with Rockland contains many terms and conditions that vary from the
standard PURPA firm energy sales agreement typically submitted for approval by the Company.
The varying terms and conditions of this Agreement include: (1) provisions for Partial
Completion Damages; (2) simplified Mechanical Availability Guarantee (MAG) calculation; (3)
providing Renewable Energy Credits (RECs) to the Company after year 2021; (4) better
financial damage and security provisions for the benefit of customers; (5) more extensive wind
forecasting data; (6) a 25-year contract term; and (7) an energy price that is lower than the
published avoided cost rate. The non-standard terms and conditions are summarized below:
Partial Completion Damages. ¶ 5.11. The expected Nameplate Capacity of the
Facility is 80 MW. If the Nameplate Capacity is less than 72 MW, Idaho Power will be entitled
to collect Partial Completion Damages from Rockland in the amount of $10,000 per MW less
than 72 MW.
Mechanical Availability Guarantee. ¶ 6.6. The MAG calculation within this
Agreement, the Company notes, is more stringent and potentially easier to administer than the
MAG in standard PURPA agreements. In both this Agreement and standard PURPA
agreements, the MAG is set at 85 percent. However, in this Agreement, the mechanical
availability of the Facility is determined by dividing the availability of each turbine as recorded
in the automated operating system of each turbine by the Nameplate Capacity of each turbine
less Idaho Power caused curtailments. In comparison, in the standard PURPA agreements,
impact of available wind, unplanned maintenance, and many other factors that are difficult to
measure are included in the Mechanical Availability calculation.
Renewable Energy Credits.1 Agreement Article VIII. The Facility retains the rights
to all RECs through the end of calendar year 2021. ¶ 8.1. Idaho Power will own the rights to all
RECs from the beginning of calendar year 2022 through the remaining term of the Agreement (a
minimum of 15 years). ¶ 8.2. This allows the QF developer to retain the RECs for the initial 10
years of the Agreement and obtain what value it can for them to help offset the cost of
development for the project at a time when the Company does not have a Renewable Portfolio

1 Under Agreement paragraph 5.12, if Rockland is unable to obtain an agreement for the sale of RECs associated
with the expected Net Energy (initial year 218,062,000 kWh, ¶ 6.4.1) produced by the Facility on terms acceptable
to Seller, then Seller shall have the right to terminate the Agreement.
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Standard (RPS) obligation for the RECs. At the same time, it also allows the Company to retain
the RECs for the last 15 years of the Agreement, after the project is developed and mature, and
when a future RPS may require the Company to obtain and have RECs.
Damages and Security. This Agreement, the Company contends, has considerably
more identified damages and security requirements of Rockland than those that are typically
applied to a QF project in a standard PURPA firm energy sales agreement. All specified
damages are supported by liquid security requirements placed upon Rockland. Thus, in the event
Idaho Power must exercise any of the damage claims, there is established security that Idaho
Power may draw upon to satisfy the damages. Just as in standard PURPA agreements, Rockland
must post $45 per kW (80 MW equals $3,600,000) of Delay Security that Idaho Power may draw
upon if the Facility is delayed in achieving its Operation Date. ¶ 5.10.1. Additional security
required in this Agreement that is above and beyond that required in standard PURPA
agreements includes:
(a) Signing Security - $300,000. Rockland must post this security prior to
Idaho Power filing this Agreement with the Commission seeking its
approval. As of September 3, 2010, Rockland posted the required
$300,000 signing security with the Company. ¶ 5.9.

(b) Operational Security - $1,500,000. Rockland must post this security prior
to the project achieving its Operation Date and shall then maintain this
security for the full term of the Agreement. ¶ 5.3(e).

Wind forecasting. ¶ 9.3. In addition to Rockland being required to contribute to the
Idaho Power wind forecasting cost as specified for all new PURPA wind agreements, the
Agreement also requires Rockland to install, maintain, and provide wind measurement data from
state of the art wind monitoring equipment to Idaho Power for the full term of the Agreement.
Contract Term. The Facility has selected July 15, 2011, as the Scheduled First
Energy date and December 31, 2011, as the Scheduled Operation Date. Appendix B-3. The
contract term specified in this Agreement is 25 years. ¶ 5.1. This term is greater than the
standard term of 20 years as provided in the less than 10 MW PURPA agreements. This 25-year
contract term was a result of negotiations that attempted to balance many related factors within
the Agreement in a manner that was favorable to Idaho Power customers and also manageable
for Rockland. Some of those factors are: the project’s willingness to meet performance
requirements for the full 25-year term; financial security in place for the entire term;
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advantageous energy pricing for the years past 20 years; Idaho Power ownership of the RECs
generated in years 11 through 25; and Idaho Power’s right of first offer to participate in
expansion and/or ownership of the Facility at any time during the term of the Agreement.
Energy Price. Agreement Article VII. As a basis for energy prices in this
Agreement, Idaho Power executed the AURORA economic dispatch model for this Facility’s
estimated energy shape as specified by Commission requirements. This model provides strictly
an energy price based upon the estimated generation from this Facility being available to meet
Idaho Power’s customers’ energy needs. This AURORA energy price contains no value for
RECs or other items of value identified within the Agreement. The energy price identified by
the AURORA run, including a discount of $6.50 per megawatt-hour (MWh) for wind
integration, was a levelized price of $56.21. In comparison, the published avoided cost levelized
price for a 10 average MW or less PURPA wind project with a planned on-line year of 2011 is
$75.88 per MWh.
The negotiated levelized energy price contained within the Agreement for the 25-year
term calculates to be $71.29 per MWh. The actual all hours energy pricing stream (¶ 7.3) begins
at $57.15 per MWh in 2011, escalates at 2.5 percent through the first 20 years to $91.36 in the
20th contract year (2030), then escalates at a reduced rate of 2 percent for the last 5 years of the
Agreement, ending at a price of $101.37 in the 25th contract year (2035). In comparison, the
published avoided cost rate available to PURPA wind projects less than 10 average MW for the
year 2011 is $55.26 per MWh, escalating to $113.21 per MWh in year 2030. This Agreement
also contains both the seasonal and time-of-day pricing as required in all PURPA agreements. ¶¶
7.1-7.2.
Although the $71.29 levelized energy price within this Agreement is greater than the
base AURORA value of $56.21, the Company notes that it is also lower than the published
avoided cost rate of $75.88. This Agreement, the Company contends, provides many additional
items of value to Idaho Power and its customers in comparison to a standard PURPA agreement
for QFs 10 MW and under. Some of those items being REC ownership, greater security and
damage provisions, wind forecasting data, additional contract years at comparatively lower cost,
and the right of first offer for ownership or expansion of this site. In addition, the $71.29 price is
considerably lower than prices bid into the 2012 wind RFP issued in May 2009, which Idaho
Power recently concluded without awarding a contract.
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Idaho Power believes that the negotiations with Rockland, which resulted in the
present Agreement, evidence the fact that the large PURPA negotiation process for large QFs
greater than 10 MW is viable and can result in a project that is both feasible for the developer
and favorable to Idaho Power customers.
Interconnection and Transmission
The Firm Energy Sales Agreement provides that Rockland must have completed an
interconnection feasibility study, is responsible to complete a Generation Interconnection
Agreement (GIA), and is responsible for all costs associated with interconnection of the Facility
to Idaho Power’s system. ¶ 5.8. As of the time of filing this Application, Idaho Power has
completed the feasibility study, and Rockland has accepted the same. The parties are in the final
stages of a facility study with an executed Generation Interconnection Agreement to follow.
Idaho Power Power Supply has also filed a Transmission Service Request for this project (rated
at 80 MW) and has received a favorable response from the transmission group that transmission
capacity is available for this project contingent upon completion of the GIA and this Agreement.
This Agreement provides that it will not become effective until the Commission has
approved all of the Agreement’s terms and conditions and declared that all payments Idaho
Power makes to Rockland for purchases of energy will be allowed as prudently incurred
expenses for ratemaking purposes. ¶ 21.1. Additionally, during negotiations, Rockland advised
Idaho Power that they have some key time constraints on developing this project and desired a
provision that allows them to terminate the Agreement if Commission approval is not received
within 90 days after the Agreement is filed for approval at the Commission. ¶ 21.2. The
Company notes that it was hesitant to agree to include such a provision in the Agreement, being
mindful of the Commission’s process and procedure and aware of the fact that the Commission
has many demands upon its time and resources. The Company recommends that its Application
be processed pursuant to Modified Procedure and believes that if such procedure is followed that
it is possible for the Commission to complete its review and issue an Order with 90 days of the
initial filing.
COMMISSION DECISION
Submitted in Case No. IPC-E-10-24 is a negotiated Firm Energy Sales Agreement
between Idaho Power Company and Rockland Wind Project for an 80 MW wind facility located
in Power County, Idaho. Idaho Power and Commission Staff recommend that the Application be
DECISION MEMORANDUM 6
processed pursuant to Modified Procedure. Does the Commission agree with the recommended
procedure?

Scott Woodbury
Deputy Attorney General

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